Explain nature and Scope of Tax planning and Management.
Answers
Tax Planning is an activity conducted by the tax payer to reduce the tax liable upon him/her by making maximum use of all available deductions, allowances, exclusions, etc. feasible under law. In other words, it is the analysis of a financial situation from the taxation point of view. The objective behind tax planning is insurance of tax efficiency. Tax planning allows all elements of the financial plan to function in sync to deliver maximum tax efficiency.
Tax planning is critical for budgetary efficiency. A reduced tax liability and maximized the ability of retirement plans.
Objectives of Tax Planning
Minimal Litigation: There is always friction between the collector and the payer of tax. In such a situation, it is important that the compliance regarding tax payment is followed and used properly so that friction is minimum.
Productivity: Among the most important objectives of tax planning is channelization of taxable income to various investment plans.
Reduction of Tax Liability: As a tax payer, you can save the maximum amount from payable tax amount by using a proper arrangement of your enterprise working as per the required laws.
Healthy Growth of Economy: The growth in an economy depends largely upon the growth of its citizens. Tax planning estimates generation of white money that is in free flow.
Economic Stability: Stability is supplemented when the tax planning behind a business is proper.
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Tax planning is a financial situation and planning to ensure tax efficiency . In different words , it is the analysis of a financial situation from taxation point of view . The objective behind tax planning is insurance of tax . Tax planning is for budgetary efficiency.
*Scope of tax planning and management :
Disclosure of correct income – disclosing correct income and information about income from all the sources . Better planning regarding income of the nation can be done and is recoreded.
Legal tax planning – legal tax planning can be done effectively . Better and appropriate methods can be adopted to plan tax management in a better way .
Productive investment- increasing profits for a company results in higher tax liabilities . With proper tax planning the direct and indirect tax burden is reduced.
*Nature of tax planning are as follows:
Public purpose- the nature of tax planning into make the public aware about their responsibilities towards the government . Tax planning is done purposely for involving the people regarding their income . The contribution so made comes back towards the public in different forms by the government.
Personal obligation- the public is liable to pay taxes as per their income level. It’s a compulsory contribution towards the government as a certain percentage of the individuals income.
Fee charged by government- it is a fee charged by the government on a product , income or activity. There are two types of taxes ( direct and indirect taxes).
Source of revenue to the government – it constitutes the basic source of revenue to the government . Revenue so raised is utilized by the government in expenses of defense, provision of education , infrastructure